Online fashion retail giant Shein has been pursuing a London Stock Exchange listing and has recently been met with “zero confidence” by MPs following a hearing earlier this week in relation to the involvement of forced labour and child slavery in its supply chain. Molly Hackett looks at why Shein is under scrutiny and explains how companies can ensure compliance and create a framework that holds suppliers accountable.
Described by the business and trade committee as “wilful ignorance”, it was reported that Shein’s representative, EMEA General Counsel, was unable to clarify whether any suppliers or manufacturers that the retailer contracts with for its production engage in modern slavery practices and failed to address the origin of its cotton sourcing.
Shein’s current co-operation and response to questions raised on its supply chain practices has added to already existing doubts over its London IPO, with the Financial Conduct Authority seeking to block its flotation and the committee of MPs being “horrified by the lack of evidence” brought forward at the hearing on the UK’s Workers’ Rights Bill.
Shein attempted to reassure the committee by advising that auditors will be checking supplier contracts and any suppliers found to be using forced or child labour would be immediately terminated.
For as long as Shein is unable to answer these pertinent questions around its supply chain and origin of its products, it is difficult to see how the retailer will be successful in its LSE listing given the potential risk to investors and impact on corporate governance standards.
The recent developments and the concerns raised by the government and the FCA demonstrate the increasing importance for supply chain transparency and eliminating modern slavery in business practices associated with the UK economy; issues which are particularly prevalent in the fast-fashion and retail industry.
Needless to say that retailers ought to be undertaking thorough due diligence before and during its contracts with suppliers and manufacturers (particularly those based in regions that are exposed and susceptible to illegal working conditions). One of the most effective ways for ensuring compliance is incorporating sufficient terms in supply agreements and having the processes in place to exercise those terms. By taking this step retailers can create a framework that holds suppliers accountable and provides remedies for any breaches of applicable laws, regulations and any codes of conduct (such as the ability to terminate the contract and potentially recover any financial loss). In addition, retailers should be able to clearly demonstrate, and document, its enforcement of supplier codes of conduct and contractual provisions in practice to external stakeholders.
Despite the bad press for the last couple of years on its trading practices, Shein has become an extremely popular ‘go-to’ online retailer for its competitive pricing, reporting to be valued at approximately £50 billion and its UK arm generating sales of £1.5 billion in 2023. That being said, consumers are becoming more educated on and concerned with sustainability and ethical practices when it comes to making purchasing decisions, and there is no doubt that the retailer will have taken a hit to its brand reputation following its lack of evidence to the committee, which it will be eager to protect in the coming months.
If you need any advice around staying compliant and incorporating sufficient terms in supply chain agreements, and creating a framework that holds suppliers accountable, speak with our award winning commerical team at [email protected].
